Posted on 11/05/2008 8:40:20 PM PST by Lorianne
Circuit City’s announcement Monday that it was closing 155 stores, or 21 percent of its 721 U.S. locations, and planning to start lease renegotiations for others, will be echoed by numerous retailers throughout 2009, with the total number of stores shuttered in the United States expected to double the figure predicted for this year.
By the end of 2008, store closing announcements will total 6,100, according to an October forecast from ICSC. But that figure might reach 14,000 next year, according to industry insiders. Store closings are already projected to be up 25 percent in 2008 compared to 2007, according to TNS Retail Forward, a Columbus, Ohio-based retail consulting firm.
“My personal feeling is that we have not seen the worst of it,” says Matthew Bordwin, managing director and national co-head of the real estate services team in the Melville, N.Y. office of KPMG Corporate Finance LLC, a middle-market investment bank.
Landlords should brace themselves for tough times ahead, after already watching one tenant after another close stores, file for bankruptcy or announce liquidation. Now, even healthy retailers are getting rid of the bottom 10 percent to 15 percent of their real estate portfolios, says Andy Graiser, co-president of DJM Realty, LLC, a Melville, N.Y.-based real estate consulting and advisory firm. To keep vacancy rates in check, landlords will have to do everything in their power to help struggling chains survive when they themselves are being faced with a refinancing crisis.
As a result of massive store closings, vacancy rates will spike next year, reaching 17.3 percent by the middle of 2009, according to Property & Portfolio Research, Inc., (PPR) a Boston-based property research and portfolio strategy firm. The firm bases its vacancy projections by comparing the changes in retail space and retail sales against a pre-determined benchmark of required sales per square foot in 54 U.S. markets. The figure includes information on neighborhood shopping centers, community centers, power centers, regional malls and lifestyle centers larger than 30,000 square feet.
In 2009, PPR projects rents in the retail sector will decline 5.6 percent. The most viable option for landlords will be to try to hold on to existing tenants by reworking their lease terms, says Graiser.
With the precipitous decline in consumer spending and the tightening credit, the industry should see a minimum of 10,000 store closings in 2009, says Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a New York City-based retail consulting and investment banking firm. In the first half of next year, ICSC projects, store closing announcements will surpass the 3,100 mark.
With holiday same-store sales growth forecasted to reach, at best, very low single digits, Davidowitz and Lois Huff, senior vice president with TNS Retail Forward, both say there will be a significant number of bankruptcies in the first quarter of 2009. Those chains that are teetering on the edge right now and need strong holiday sales numbers to stay afloat will likely be pushed into bankruptcy.
During the 2008 holiday season, spending on apparel will experience zero percent growth compared with a 1.9 percent increase last year, according to TNS Retail Forward’s projections, while spending on furniture items will fall 2.3 percent compared to a decline of 0.7 percent last year. The luxury sector will feel the pinch as well, though not to the same extent as midmarket retailers, says Davidowitz.
“It’s basically a foregone conclusion that it will be one of the more challenging seasons we’ve seen in many, many years,” says Al Williams, principal with Excess Space Retail Services, Inc., a Huntington Beach, Calif.-based real estate disposition and restructuring firm. “Consumer spending has been down; if anything, by December, it could be slightly worse.”
Excess Space estimates the number of store closings for all of 2009 could increase 100 percent compared to this year, ranging from 12,000 to 14,000 stores. Chains that rely on discretionary spending, including apparel sellers, furniture stores, jewelers and restaurant operators, will be hardest hit, according to Graiser.
This will be a particular concern for owners of class-B properties in secondary markets, which will experience the brunt of the closings, says Bernard J. Haddigan, managing director of the national retail group with Marcus & Millichap Real Estate Investment Services, an Encino, Calif.-based brokerage firm. If those centers face debt maturities next year, the owners might be forced to put in more equity into refinancing transactions to make up for rent shortfalls.
But lenders will likely try their best to help owners keep occupancy levels up, says Graiser. “The lenders are not going to want to see these properties come back to them.”
Dang. That 0bama is good. When he promised change, I didn’t think he meant it.
I get these surveys in the mail, they pay $5 to do them, on various types of products. One of the products they asked about was “Larry Summers”.
I am wondering if the 0 team was surveying whether they should put him in an administration.
This is Bush’ fault. That’s what will be taught.
Hussein’s fault!
should have read for the next four years.
That is hope — the change is what is left in the pockets of the unemployed. At least those who don’t have holes in those pockets.
Good plan — now what will you do when the messiahnfuhrer nationalizes our 401Ks and puts then into SSI?
Free market works.
Made in China...
Can’t wait for 2012 when it will be asked, Is this the change you really wanted?
You’re a smart guy. Everyone else, listen up, don’t buy ANYTHING you don’t absolutely need. Keep that money in your pocket.
That means that if a retailer had 200 stores in 2002, then added 50 stores from 2003-2008, they will be back to 200 stores (maybe not all in the same place) unless they were able to grow their market or increase market share.
That's almost a given in electronics today.
Having said that, I love my Vizio HDTV. Don't know who built it, but I bought it at Sam's Club.
Given construction costs and/or rent, payroll, utilities, etc., it's got to be tough. I'm sure Circuit City and its competitors have people coming in every day, getting the sales people to demonstrate five different stereos or TVs, and then, after that research, ordering their choice from a discount warehouse for a lower price.
Expect more shuttered "big box" stores, even when/if the economy bounces back.
Yep, this is a severe recession. Things are collapsing all over.
Yeah its called Amerika now. http://www.youtube.com/watch?v=1_I4WgBfETc
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Store Closings Could Double in 2009
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I hate to see anyone lose a job.
Or for store(s) to close and put people out of work.
But given the difference in shopping experiences at Best Buy and
Circuit City in West Los Angeles (just south of UCLA)...
I’d say at least THAT Circuit City deserved to be closed down.
Just a bunch of jumpy, in-you-face, won’t-take-no-for-an-answer
on “protection packages” bunch of jerks.
(but got to admit, they were probably being managed by an even bigger jerk).
Comparatively, the Best Buy shopping experience was bliss.
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